US producers play catch-up in LNG export

BP’s London-based head of energy economics, Paul Appleby, expects the United States to develop a significant liquefied natural gas export industry as the shale gas “revolution" in the country progresses.

Mr Appleby was in Perth to promote the petroleum giant’s annual statistical revi­ew of world energy, which this year clearly documents the rise of unconventional gas in the US.

The review shows that in 2011 gas prices around the world increased broadly in line with oil prices, except for in North America, where prices reached record discounts to both crude oil and international gas markets. A surge in production made possible by the application of new techniques that have made it economical to extract gas from shale deposits drove the North American price fall.

Mr Appleby said yesterday that he believed this price arbitrage between the US and other gas markets would encourage more US producers to explore exporting.

“Certainly, we see this big gap between US gas prices and Asian gas prices as a big incentive for people to develop LNG exports out of the US," he said.

Exporting gas from the US has been a politically sensitive issue, with one argument being that it needed to be reserved to ensure there was cheap energy available for domestic use.

In April the first LNG export permit in 40 years was granted to Cheniere Energy for its $US10 billion Sabine Pass project in Louisiana.

The Obama administration has said it does not oppose US LNG exports, but is relying on official analysis to decide whether more export projects should be allowed to proceed.

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Mr Appleby said he therefore expected it would be a long time before the US rivalled the world’s largest LNG producers, Qatar and Australia.

“It will be a potential competitor to Australian LNG," he said. “But it’ll take time for the capacity to be such that it will actually make an impact.

“There’s still plenty of opportunity for Australia to increase its LNG output. It just has to execute the projects and do it at the right cost."

Woodside
has forecast North America will produce 40-50 million tonnes of LNG a year by 2025, accounting for a tenth of global supply by that time, compared with 30 per cent from Australia.

Wood Mackenzie, which is among the more bullish for North American LNG exports, estimates the US could ship 40 million tonnes three years earlier, by 2022, about double current Australian cargoes.

In another potential boost for LNG demand, Japan is expected to increase its reliance on the fuel in the wake of the Fukushima nuclear disaster last year.

“Before Fukushima they [Japan] had about 25 per cent of their electricity coming from nuclear and their plan was to take that up to 50 per cent," Mr Appleby said. “They’re not going to do that anymore.

“Renewables is one big push. There’s also a big push on conservation and efficiency. But even with all those things in place, there’s going to be a big opportunity for LNG as well."

According to the review, world gas consumption grew 2.2 per cent in 2011.

Growth was below average in all regions except for North America, where the low prices drove increased consumption.